The Plans for a Miracle: Digest of Belarus’ Economy

On 3 June 2016 President Alexander Lukashenka decided to strengthen the country's antimonopoly regulation by reforming the Ministry of Trade of Belarus.

Meantime, state-owned enterprises (SOEs) are gradually losing their strength and are praying for more changes in their public...

On 3 June 2016 President Alexander Lukashenka decided to strengthen the country's antimonopoly regulation by reforming the Ministry of Trade of Belarus.

Meantime, state-owned enterprises (SOEs) are gradually losing their strength and are praying for more changes in their public administration.

Finally, оn 22 June 2016 the fifth All-Belarusian National Assembly revealed the key priorities of the latest round of economic reforms.

Institutions: Promoting Competition

On 3 June 2016 Lukashenka signed a new decree that establishes a unified antimonopoly body called the Ministry of Antimonopoly Regulation and Trade on the basis of the existing Ministry of Trade of Belarus.

It is intended that the new government agency will merge the functions of price regulation, formerly performed by the department of price policy at the Ministry of Economy, and antimonopoly control, formerly carried out by the Minsk city and regional executive committees.

It will regulate the activities of natural monopolies, prices and tariffs in the consumer market, public procurement, advertising and consumer protection.

According to Minister of Trade Vladimir Koltovich, the creation of a unified and independent antimonopoly body will ensure the development and protection of competition and improvement of antimonopoly legislation.

But a key task for the new state institution is protection of the internal market from unfair competition and ensuring equal access for all its participants.

However, experts such as the co-chair of the Republican Confederation of Entrepreneurship Viktor Margelov doubt that the new state body will possess enough power to fight against the lobbying pressure of traditional monopolies and regional protectionism (i.e. the shielding of local authorities from competition from other regions of Belarus).

According to Margelov, a better approach lies in the creation of an independent agency subordinated directly to the president. As currently conceived, the agency appears useless considering the high incentives for the government to interfere in it.

State Sector: Blind-Eye Management

In the meantime, after years of direct administration of the economy and disregard for market rules, SOEs have been significantly transformed.

According to the latest data, the number of commercial organisations with a state share equals 3662. This sector contributes almost 80 per cent to the full body of industrial production, generates more than 60 per cent of the country's revenue and absorbs approximately 60 per cent of all investment in fixed capital in Belarus.

However, despite the unbreakably dominant position of SOEs in the Belarusian economy, their financial performance has started to deteriorate considerably. As a result, in only a few years the share of unprofitable SOEs has skyrocketed.

For example, in 2012 the share of loss-making organisations in the public sector was only 4.8 per cent, but in the first quarter of 2016 it increased to 26.3 per cent (see Figure below). Moreover, in the first quarter of 2016 SOEs reported net losses to the amount of BYR 3.9tn.

Another significant change is the reduction in the number of employees. In 2012, the average number of SOE employees equalled 1.7m or more than one third of the economically active population of Belarus. However, in the first quarter of 2016 it decreased by almost 200,000 to 1.5m.

Moreover, with such dynamics in the public sector, in ten years the number of employees will fall to less than one million people. Belarusian economists see the main reasons for this situation as the ineffective utilisation of financial and capital assets assigned for the modernisation of SOEs.

Taken altogether, the government has only three choices: to close the inefficient enterprises, to sell them without any terms attached or to find ways to increase the effectiveness of state administration.

Economic Policy: Disclosing the General Plan

On 22 June 2016 Lukashenka while speaking at the fifth All-Belarusian National Assembly announced several reforms.

First, a reduction in state administration and an increase in salaries for officials at the local level.

Second, accelerated development of high-tech industries in the next five years, including microelectronics, laser, bio – and nanotechnologies, and the production of precision mechanical engineering.

Third, creation of more than 250,000 new jobs mostly at small and medium-sized enterprises, to coincide with simplification of the tax payment system.

Fourth, an increase in the protection of Belarusian economic interests in economic organisations like the Eurasian Economic Union (EEU) and European Union (in many cases Belarusian representatives in the EEU have not prioritised national interests).

Fifth, competitive allocation of financial resources to take into account primarily the recoupment of capital investment.

Finally, a significant improvement in relations with the EU and the United States will be pursued in order to diversify markets for export promotion (the key task for the future is the full normalisation of relations and the conclusion of a basic agreement between Belarus and the EU).

The government therefore has a long to-do list for the next five years if it is to increase competition and effectively manage SOEs. However, one question remains: is the time span of the current economic crisis enough to come true above economic changes?

Aleh Mazol, Belarusian Economic Research and Outreach Center (BEROC)

This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)

Belarus Introduces Alternative Civilian Service

Image from www.belta.by

On 1 July 2016 a new law on alternative civilian service comes into effect in Belarus. This coming fall,10, 000 young Belarusian conscripts will start their compulsory military service. According to tut.by 20 of these would like to exercise their option for alternative civilian service.

Finally, after more than a decade of debates in parliament and discussions by various commissions, the new law will stipulate the conditions for such an alternative service. Known as “alternativschiki”, these young men will fall under the mandate of the Ministry of Labour and Social Protection. In Belarus they will have to serve for three years, twice the time required of regular military conscripts.

Conscripts, dodgers, and ‘alternativschiki’

Twice a year the Belarusian Ministry of Defence drafts young men between the ages of 18 and 27 for conscription. During Soviet times men were eager to sign up. The received wisdom was that for men ‘the army was the school of life’. They had to serve for two years and could end up virtually anywhere in the huge territory of the Soviet Union, usually outside of Soviet Byelorussia.

Since then much has changed. For each conscription round – one in the spring and one in the autumn – the Ministry of Defence aims to draft around 10,000 young conscripts. Many young men successfully dodge the draft. The army has lost its allure since Soviet times and families pay big money and pull many strings to get their sons out of it. Daughters are immune, as the Belarusian army conscripts only men.

Methods for dodging, postponing, or cutting the length of compulsory military service have become common knowledge. Education for one offers immediate payoffs. Men without higher education have to serve 18 months in the army. Having a university degree decreases this term to 12 months. If the individual's university itself offers military training, a conscript's time in the army is further reduced to six months.

Now, starting from 1 July, those with religious pacifist beliefs could qualify for a different kind of deal. The new Belarusian law on alternative civilian services offers conscientious objectors a paid option instead of conscription. It stipulates 36 months – instead of 18 in the army – of paid labour in the healthcare sector or social system institutions, agriculture or railroad maintenance, or other areas as delegated by the Ministry of Labour and Social Protection.

Victor’s story

The new Belarusian law covers only religious pacifist beliefs as possible grounds for conscientious objection. In order to be eligible for alternative civilian service one needs to submit a written petition no later than ten days before the end of the conscription term. The committee will then consider the application, and hand down its ruling. This is how the process should work if properly applied. Victor’s story shows how the law does not work in practice.

Victor works at a factory in Brest. He comes from a middle class working family with an alcoholic father. He identifies as a Jehovah’s Witness, and has refused to serve in the army. Victor would eagerly commit to 36 months of alternative civilian service, double the time of a regular conscript. Except he faces criminal charges and a BYR 21m (roughly $1,000) fine instead.

Victor’s story started when the law on alternative civilian service did not exist. And yet even then two consecutive court hearings ruled in his favour. The court found his desire to serve in a ‘non-military’ way was justified by his religious beliefs. The Prosecutor General, dissatisfied with the decision of the local courts, appealed to the Supreme Court, and won.

Victor filed an appeal on 24 June, and is awaiting the decision. In his interview to people.onliner.by Victor speaks of the possible resolution:

Two courts have ruled in my favour, and on a third attempt under the same article they charged me with a criminal offence. Certainly the law (on alternative civilian services) will soon come into effect, as it is only a matter of time. But why should I depend on it? How can I account for the lack of alternative civilian services up til now? I have never dodged conscription; I wanted to serve my country. And not just for a year and a half, but for all three! I see it as my responsibility to my country, but wish to do so in an alternative way.

Naysayers

Formally Article 57 of the Belarusian Constitution grants eligible Belarusian men a right to alternative civilian service if their religious beliefs did not allow them to serve. However, in reality, no mechanism for enforcing this has existed until now. In the eyes of the Ministry of Defence, men who could not serve because of their religious beliefs were no different from other army dodgers.

Current and previous Ministers of Defence have openly denounced an alternative civilian service, called it outright harmful, and spoke about it in other negative terms. The Ministry has typically seen its biggest challenge as being to make alternative civilian service so unattractive that men would not choose to pursue it. It seems they have succeeded.

The new law takes into account only religious grounds. It stipulates double the term of service as compared to regular conscripts – three years instead of one and a half for those without higher education, and two years instead of one for college graduates. And most importantly, ‘alternativschiki’ will get paid around BYR 2m monthly, which roughly comes to $115.

These conditions certainly make it highly unappealing. Moreover, the Ministry of Defence reserves the right to deny applicants this option without explanation or recourse to appeal. It seems at least for now that the service exists only formally. And the Ministry of Defence has no intention of turning it into a viable alternative to military service.